FY18-19 School Funding Overview. FY16-17 Funding Formula

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1 FY18-19 School Funding Overview OSBA Board Leadership Institute April 21, 2017 Dr. Howard Fleeter Ohio Education Policy Institute FY16-17 Funding Formula The current FY16-17 school funding formula retains the same basic components from the previous FY14-15 formula: Core Opportunity Aid Career Tech Program & Associated Services funding Funding for Economically Disadvantaged students Gifted Identification & Gifted Program Unit funding K-3 Literacy funding Funding for Limited English Proficient (LEP) students Special Education funding Targeted Assistance Transportation funding 1

2 New Components in the FY16-17 Funding Formula FY16-17 funding formula also includes several new components Capacity Aid Transportation Supplement Graduation Rate Bonus 3rd Grading Reading Bonus Tangible Personal Property (TPP) Supplement (FY16 only - Governor vetoed FY17 supplement) Governor s FY18-19 School Funding Formula Overview Basic formula the same as in FY16-17 State Share Index (SSI) updated All Per Pupil funding amounts in formula frozen at FY17 levels Transportation minimum state share reduced from 50% to 37.5% in FY18 and 25% in FY19 Guarantee will be reduced for districts that have experienced more than 5% enrollment loss from FY11 to FY16 Gain Cap set at 5% in both FY18 and FY19 TPP Supplement eliminated 2

3 State Share Index (SSI) The SSI is the method for determining the State & Local share of formula funding in each school district. The SSI applies to these components of the funding formula: Core Opportunity Aid Special Education Aid Career Technical Education Aid LEP Funding The Equalized portion of K-3 Literacy Aid Transportation Funding Graduation Rate Performance Bonus 3rd Grade Reading Performance Bonus The SSI does NOT apply to these components of the formula: Targeted Assistance Economically Disadvantaged Student Aid The Unequalized portion of K-3 Literacy Aid Gifted Student Funding Capacity Aid Transportation Supplement State Share Index (SSI) The State share index approach was first enacted in the FY14-15 funding formula. Districts are first ranked according to their property wealth and an index is created based on a comparison of each district to the statewide property value per pupil. Next, an income index is created in a similar fashion. In FY14-15 the income index was based on district median income only. In FY16-17 the income index is a combination of median income and Federal Adjusted Gross Income (FAGI) per pupil. The income index is included only if it is favorable to the district to do so. Otherwise, the wealth index is based only on property wealth. However, most of the districts benefiting from the income factor are higher income districts rather than lower income districts. In addition, because it is based on a comparison to statewide valuation, any policy change that impacts valuation in some districts will ultimately affect the SSI in all districts. 3

FY18-19 State Share Index (SSI) FY16-17 SSI is based on the average of TY12, TY13, and TY14 property values. The FY18-19 SSI will be based on the average of TY14, TY15, & TY16 property values.

4 FY18-19 State Share Index (SSI) FY16-17 SSI is based on the average of TY12, TY13, and TY14 property values. The FY18-19 SSI will be based on the average of TY14, TY15, & TY16 property values. 373 districts have their state share go down when the FY18-19 SSI is compared to the FY16-17 SSI. These districts account for 36.1% of the students in the state. 213 districts have their state share increase. These districts account for 60.7% of the students in the state. 24 districts have the same state share in FY18-19 as in FY The overall state share decreases by 1.5% from 48.1% in FY16-17 to 46.6% in FY The income factor remains flawed by primarily benefiting districts with median income above the statewide median. FY18-19 SSI Change by Typology 4

TY12-TY15 Property Valuation Change by Typology FY16-17 Foundation Formula Parameter Changes In FY16-17, Core Opportunity Aid increased by $100 per pupil each year Special ed per pupil weighted

5 TY12-TY15 Property Valuation Change by Typology FY16-17 Foundation Formula Parameter Changes In FY16-17, Core Opportunity Aid increased by $100 per pupil each year Special ed per pupil weighted amounts increased by 2% in both FY16 and FY17 Career tech. per pupil weighted amounts increased by 4% in both FY16 and FY17 K-3 literacy per pupil amounts increased by 5% in both FY16 and FY17 Other funding formula parameters remained at FY15 levels in FY16 and FY17 5

6 Per Pupil Base Funding Amount Since FY09 FY09: $5,732 per pupil ( Building blocks method) FY10-11: OEBM - no per pupil amount FY12-13: Bridge Formula (not really a formula) FY14: $5,745 per pupil (no methodology) FY15: $5,800 per pupil (no methodology) FY16: $5,900 per pupil (no methodology) FY17: $6,000 per pupil (no methodology) FY18: $6000 per pupil (frozen) FY19: $6000 per pupil (frozen) Freezing of Per Pupil Funding Amounts in FY18 and FY19 Core opportunity aid per pupil amount remains at $6,000 in FY18 and FY19. The base per pupil amount has increased each year from at least FY1990 except for FY10 & FY11 (EBM did not use a per pupil amount) and FY12 & FY13 (Bridge Formula). Increases in the per pupil amount are necessary to keep pace with inflation. If the FY09 base cost of $5,732 (Building Blocks approach) were updated for inflation it would be $6,390 in FY17. FY09 was the last time the per pupil amount was based on an objective cost methodology. Increasing the per pupil amounts in the formula also acts as a safety valve as property values change over time. This is necessary because of phantom revenue. 6

Guarantees The Transitional Aid Guarantee means that in FY16 & FY17 no district received less formula funding than was received in FY 2015. In FY18 and FY19 the guarantee is based on FY17.

7 FY15, FY16 & FY17 Funding Comparison These components are excluded from the gain cap limitation ** Career Tech. funding was moved outside both the gain cap and guarantee calculation in FY17 *** FY17 TPP Supplement restored in SB 208 at 96% of FY15 Total State Formula Aid + TPP Replacement payments Caps and Guarantees The Transitional Aid Guarantee means that in FY16 & FY17 no district received less formula funding than was received in FY In FY18 and FY19 the guarantee is based on FY17. However districts with more than 5% enrollment loss will see their guarantee amount reduced in FY18. The Gain Cap means that increases in state funding are capped at 5.0% in FY18 and and an additional 5.0% in FY19 The TPP Supplement was intended to ensure that no district received less state formula funding + TPP reimbursement in FY16 and FY17 than was received in FY15. However, the Governor vetoed the TPP Supplement in FY17. It was then replaced at a reduced level for FY17 in SB 208 (Oct. 2015). There 7

8 FY15-19 Guarantee & Gain Cap Transitional Aid Guarantee: FY15: $165.9 million (188 districts) FY16: $123.6 million (173 districts) FY17: $104.4 million (133 districts) FY18: $181.2 million (315 districts) FY19: $196.8 million (321 districts) Gain Cap (7.5% in both FY16 and FY17): FY15: $669.2 million (237 districts) FY16: $603.9 million (188 districts) FY17: $492.9 million (151 districts) FY18: $465.7 million (130 districts) FY19: $358.7 million (103 districts) FY17 figures are based on ODE January # 1 SFPR FY18 & FY19 figures from OBM budget spreadsheets FY18-19 Guarantee & Gain Cap Gain Cap (7.5% in both FY16 and FY17): The gain cap allowed for 7.5% growth in formula funding in both FY16 and FY17. In FY18 and FY19 the gain cap has been reduced to 5% each year. Transitional Aid Guarantee: From FY17 to FY18 the cost of the guarantee increases by 74% under the Governor s proposed formula and the number of districts on the guarantee increases from 133 to 315 (an increase of nearly 2.5 times) If the Governor had not made the enrollment-based reductions to the guarantee, 363 districts (59.5%) would have been on the guarantee in FY18. Administration has stated that they do not want to be funding phantom students who are no longer in the district. 8

9 4 Reasons a District Would End up on the Guarantee in FY18/19 1. The district was on the guarantee in FY17 and remains on the guarantee in FY18 2. The district's SSI decreased from FY16-17 to FY The district s transportation funding decreased because of the reduction of the minimum transportation state share from 50% in FY17 to 37.5% in FY18 and 25% in FY The district's Targeted Assistance or Capacity Aid decreased from FY17 to FY18. (These 2 components are recomputed every year.) As mentioned earlier, normally annual increases in the per pupil amounts in the formula would provide a hedge against any of these circumstances. Breakdown of Districts on Guarantee in FY of 133 districts on guarantee in FY17 remain on guarantee in FY new districts placed on guarantee in FY18 prior to guarantee reduction. 138 of these districts had SSI decrease 13 districts had transportation funding reduced 85 districts had both their SSI decrease and transportation funding reduced 2 districts had Capacity Aid decrease 9

10 So Why Such a Large Increase in Districts on the Guarantee? When FY14-15 SSI and FY16-17 SSI are compared, 389 districts had their SSI go down. When FY16-17 SSI and FY SSI are compared, 373 districts had their SSI go down. Yet the number of districts on the guarantee declined in both FY16 and FY17 and the number of districts on the guarantee in both FY18 and FY19 increased. The major difference is that in the FY18-19 biennium the per pupil amounts in the formula are all frozen, and in the FY16-17 biennium most per pupil amounts were increased and additional components (Capacity Aid, Transportation Supplement, were added). How Governor s Guarantee Reduction Works Enrollment loss from FY11 to FY16 is computed. This is based on Total ADM for each year (actual # of students). Districts that have lost greater than 5% of enrollment and are on the guarantee will experience funding reductions. District losing greater than 10% of Total ADM will see a 5% funding cut. Districts between 5% and 10% enrollment loss will see a funding cut = % enrollment decline - 5% (i.e. 7.5% decline in enrollment = 2.5% funding reduction). Guarantee reduction = percentage of formula funding, not percentage of guarantee amount. Thus, a district with 10% or more enrollment loss and total state aid = $10 million including a guarantee of $1 million, would see their guarantee reduced by $500,000, NOT $50,000. The funding reduction cannot exceed guarantee amount. 10

TPP Replacement Payment Phase-out Under SB 208 Instead of basing the TPP reductions on a maximum percentage of each district s total resources, SB 208 provides that each district that is still

11 TPP Replacement Payment Phase-out Under SB 208 Instead of basing the TPP reductions on a maximum percentage of each district s total resources, SB 208 provides that each district that is still receiving TPP replacement payments in FY17 will then see annual reductions of a maximum of 5/8th of a mill of local property valuation. The SB 208 TPP phase-out formula slows down the loss of TPP replacement payments for many districts. No regular K-12 district is worse off under SB 208 than they would have been under HB 64. (However, 3 JVSDs are worse off.) The SB 208 TPP replacement phase-down is in permanent law and will apply until all TPP payments are eliminated (see next slide). Warning to districts with electric generating facilities: Coal fired power plants are being devalued. This stands to create substantial reductions in local property tax revenues for these districts. FY11-FY27 TPP Replacement Payments and # of Districts * FY17 -FY27 figures are estimates prepared by Howard Fleeter based on ODE FY16 data LSC SB208 data. 11

12 FY17-FY19 TPP Operating Lev Replacement Payment Summary # of Districts Losing State Aid from FY17 to FY18 by % Loss (with & without TPP Reductions) 12

House Finance Primary and Secondary Education Subcommittee House Bill 49 Testimony. Dr. Howard Fleeter Ohio Education Policy institute.

House Finance Primary and Secondary Education Subcommittee House Bill 49 Testimony Dr. Howard Fleeter Ohio Education Policy institute March 8, 2017 Chairman Cupp, Ranking Member, Miller, members of the